In Attempting to Improve Profitability When Faced with a Bottleneck

question 7

Multiple Choice

In attempting to improve profitability when faced with a bottleneck related to hours that is involved in the production of two or more products, which of the following is most important for management to consider?

• A) Contribution margin per unit for each product
• B) Time required for each different product passing through the bottleneck
• C) Selling price or sales revenue generated by each product produced through the bottleneck
• D) Contribution margin per bottleneck hour for each product

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Definitions:

Variable Costing

Accounting practice that integrates only variable cost elements of production (direct materials, direct labor, and variable manufacturing overhead) into the valuation of products.

Net Operating Income

The total profit of a company derived from its normal business operations, excluding expenses and revenues from non-operating activities.

Unit Product Cost

The total cost (both variable and fixed) associated with producing one unit of product.

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, such as utilities and materials.